Larry Summers was in full flow. Addressing a packed meeting on sovereign wealth funds at the Davos gathering of the World Economic Forum in January, the former US treasury secretary told the investment arms of foreign governments they should sign up to a code of conduct and be more transparent.

In a telling sign of the shift in the balance of global economic power, the sovereign wealth funds told Summers to get lost.

The Saudis accused him of double standards: hedge funds were not being regulated despite causing mayhem in the financial markets, so why pick on SWFs? The Russians - revelling in Washington's discomfort - said American attempts to restrict investment were "not helpful".

This week the fears resurfaced. José Manuel Barroso, president of the European Commission, said Brussels could not allow non-European funds "to be run in an opaque manner or used as an implement of geopolitical strategy".

Barroso's main worry is that Russia - which set up an official SWF last month - is planning to relaunch the cold war, only this time with oil and gas receipts rather than with the Red Army.

Some western governments are suspicious about the motives of sovereign funds that have been buying up assets in developed countries.

Washington, which has launched talks with funds in Abu Dhabi and Singapore, has concerns over Russia's one-time rival communist superpower China, which has grown weary of stockpiling US Treasury bonds and has started to size up physical assets in the west.

However, the EU and the US are in a weak position. They would like all such funds to follow the example of Norway, which has banked its North Sea receipts from the past 30 years in a £300bn-plus long-term investment fund, and the International Monetary Fund is finalising a voluntary code of practice.

This will be revealed in the coming weeks, but if the SWFs choose not to abide by it, there is little Brussels and Washington can do. The fivefold increase in the price of crude oil to more than $100 a barrel has provided a windfall for the coffers of oil and gas producing countries, while the nations of east Asia have amassed huge holdings as a result of export-led growth. Britain, as a report by PricewaterhouseCoopers pointed out this week, could have built up a £450bn sovereign wealth fund had it not spent its North Sea bonanza on politically expedient tax cuts and higher public spending.

Elsewhere, sovereign funds are rich, they are growing in size and they have been bailing out the west's tottering banks after ill-advised speculation saw their assets slashed in value by the American sub-prime mortgage crisis. The Abu Dhabi Investment Authority - the world's biggest SWF - has taken a $7.5bn (£3.8bn) stake in Citigroup; one of Singapore's funds has injected $11bn into the Swiss bank UBS, the other has invested $5bn into Morgan Stanley. China has ploughed $5bn into Merrill Lynch.

Train wreck

A study by one of the biggest banks, HSBC, noted: "The owners of emerging SWFs look unlikely just to roll over. They are enjoying the boot being on the other foot after an awfully long time. The train wreck that was the 1990s, when they had to go cap-in-hand to the developed world, was bad enough.

"Going back further, western jibes about state capitalism would, perhaps, have more power had they themselves not ruled many of these countries for years via state-licensed companies."

Gerard Lyons, chief economist at Standard Chartered, said: "Sovereign wealth funds have existed since 1953 and are here to stay. Their size and influence is set to grow. Already valued at $2.2tn, on current trends they could reach $13.4tn in a decade.

"There is a serious likelihood of western governments and SWFs clashing over what they can buy and where. A protectionist backlash against strategic investments is real and threatens global trade."

The growing tension erupted in 2006 when the US prevented Dubai Ports from taking control of six American ports on grounds of national security. Lyons believes that western governments will seek to protect national champions and strategic sectors, but that SWFs are also likely to take a tough line. "Many governments will argue that it is their money and why should they be so transparent when other areas of the financial markets are not," he said.

"Western countries may need to accept the rise of SWFs as a further sign of a shift in the world economy and should seize this opportunity to work with emerging economies such as China and Russia and others to find common ground rules and a code of practice."

There are few signs that SWFs are being used as an instrument of foreign policy, although Brussels clearly has misgivings about the Kremlin's intentions. Equally, there is evidence that the governments behind the SWFs are enjoying the clout their wealth has given them. And with no immediate end in sight to the credit crunch, their bargaining position is strong and getting stronger.

Tequila crisis

"From the Latin American debt crisis of the 1980s, through the Tequila crisis of 1994-5, the Asian crisis of 1997, Russia's default and Argentina's even larger one in 2001, the emerging world always with its finances in a parlous state, rocked from one crisis to another," HSBC said.

"Now, huge quantities of money from the emerging world - some $60bn at the last count - are injecting a measure of stability into the developed world's arteries: some of its biggest, boldest and brashest banks, brought low, in their turn, by investments and finances that were themselves, it now transpires, an awful lot less stable than they or most others had assumed."